Inflation, energy and last-minute breaks boom

As we embark on the first few weeks of the UK school summer holidays, it appears that once again the staycation may be the preference for holidaymakers this year as operators are reporting that last-minute domestic bookings have picked up.

Airlines and airports have made it clear that they’re unable to cope with consumer demand due to lack of staff and sickness, while the UK’s busiest airport has even put a daily limit on their capacity numbers, something we’ve never seen before.

Towards the end of last year some sub-markets were already exceeding 2019 RevPAR levels, such as the coastal towns of Bournemouth, Blackpool and Plymouth, and many other markets were achieving higher average daily rates. Nobody ever thought that 2021’s peak rates would be sustained this year due to government-backed savings resulting in a bumper trading period, particularly in staycation locations.

Last year both customers and operators were navigating through a roadmap to increase freedom, so booking ahead was essential if you were to secure a place to stay away from the confines of your own home. This year, with no restrictions in place, customers, particularly those not confined to the academic timetable, have more flexibility around bookings, reducing that pent-up demand operators had last year and compressing daily rates. This last-minute surge in demand could see rates rise once again.

However, there is still a lot of pent-up demand, and net savings in the UK economy increased by £185bn over the course of the pandemic, which under normal circumstances, would lead us to several years of positive economic growth. While this is still true, a lot of it is fueling inflation, which is now approaching almost record levels, and ADR in hotels are certainly benefitting from this.

Transactional activity

From a hotel agency perspective, this has been a solid year of trading. At Colliers, we have completed 37 transactions so far, which is on par with last year’s record year of activity. There appears to be no let up in interest levels from buyers, both domestically and from overseas investors.

Our busiest locations have, once again, been the staycation markets, with the Lake District, Cotswolds, South Western region, Wales and parts of Scotland leading the way. We’re also seeing many established or growing operators acquiring assets previously owned by private families where, in some cases, debt added during COVID and the lack of ability to invest, are fundamentally altering business models and viability. These purchases are now encouragingly being supported by the banks.

During 2020 and 2021, there were a noticeable amount of individual and private buyers taking a step into the provincial hotel market as well, purchasing small guest houses or pubs with rooms in the countryside.
However, 2022 has seen a slightly lower level of these types of buyers, which was largely driven by funding availability.

Larger hotels are still attracting a good deal of interest, and there are examples of overseas buyers returning to acquire UK hotels. Whilst countryside regions have been busy, London continues to be a fairly quiet market for transactions, though it is now experiencing its own post-pandemic trading recovery that we expect will give rise to an increase in activity levels next year.

Customer behaviour

With some international travel returning, the cities which rely on overseas tourists and business travellers are expected to fare much better this year, while staycation locations should also start to see the return of international travellers.

What is interesting to note about customer behaviour is that hotel bookings are increasingly being made from smartphones. Some studies even suggest that as many as 80% of them are made this way, which highlights the need to ensure operators have a mobile-friendly website.

While considering consumer behaviour online, we have to be mindful of online reviews and their impact on bookings. Observing reviews there’s a lot more criticism out there for those that hiked up their rates but failed to provide the premium service expected with premium pricing. From my experience, it appears that those who capitalised on last year’s demand may not be faring as well in occupancy levels this year.

Aside from the above, there are increasing numbers of holidaying options. During the last three years, there has been a 40% increase in holiday lets available in the UK. Websites such as Airbnb.co.uk have made this short-term accommodation option much easier to market, however the call for stricter regulations is likely to dampen supply in the future.

The last-minute uplift in bookings will be a welcome relief for operators, but the ongoing challenges around recruitment and retention are now part of everyday life. Hospitality, just like many other service sectors, is still struggling to replace the staff numbers lost during the pandemic. These shortages can impact on the number of rooms that are made available, or the amount of services possible through the on-site catering or additional facilities, all the while there are headwinds from the rising costs of energy and inflation, which will obviously affect those with the most luxurious offerings of spa and pool, as well as push up the costs of food, beverages and sundries.

However, despite these challenges, the expectation is that RevPAR will once again exceed the pre-pandemic 2019 levels in most key locations and there is real confidence in the market as operators continue to expand their portfolios across the UK.